Fall 20

INTERNATIONAL LAWYERS NETWORK

HOLMES O’MALLEY SEXTON SOLICITORS ESTABLISHING A BUSINESS ENTITY IN IRELAND

ILN CORPORATE GROUP [ESTABLISHING A BUSINESS ENTITY IN IRELAND] 2

This guide offers an overview of legal aspects of establishing an entity and conducting business in the requisite jurisdictions. It is meant as an introduction to these marketplaces and does not offer specific legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship, or its equivalent in the requisite jurisdiction.

Neither the International Lawyers Network or its employees, nor any of the contributing law firms or their partners or employees accepts any liability for anything contained in this guide or to any reader who relies on its content. Before concrete actions or decisions are taken, the reader should seek specific legal advice. The contributing member firms of the International Lawyers Network can advise in relation to questions regarding this guide in their respective jurisdictions and look forward to assisting. Please do not, however, share any confidential information with a member firm without first contacting that firm.

This guide describes the law in force in the requisite jurisdictions at the dates of preparation. This may be some time ago and the reader should bear in mind that statutes, regulations, and rules are subject to change. No duty to update information is assumed by the ILN, its member firms, or the authors of this guide.

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ESTABLISHING A BUSINESS ENTITY IN IRELAND benefits received, such as extra capital and expertise from the others engaged in the “Establishing a Business Entity in venture. Partnerships, in contrast to Ireland” companies, are not legal entities: there may be Lawyers at HOMS Solicitors – Dublin a name attached to the partnership, but it consists solely of the individual partners and the partnership has no independent legal I. Introduction existence. As a common law jurisdiction, Ireland’s legal The partners share the profits of their venture system is similar to that of the US and the UK and, similarly, the assets and liabilities are and businesses can be carried on in Ireland in those of the partners. It is possible to register a several different ways, including as sole traders, limited partnership in which some partners partnerships, or companies. have limited liability under the Limited Partnerships Act 1907, but limited partners Companies may not take place in the management of the A company is a body formed and registered business. under the Companies Act 2014, which has legal Whereas the affairs of a company are managed personality separate and distinct from its by its directors (and not by its shareholders), shareholders. There are various types of each partner is entitled to participate in all the companies and each has its own distinct activities of the partnership. advantages and disadvantages. II. Types of Companies Sole Traders All Irish companies are governed by the A sole trader may be defined simply as an Companies Act 2014, which came into force on individual who sets him or herself up in 1 June 2015. There are several different types business. Sole traders do not enjoy separate of company structure provided for under the legal personality and are therefore liable for Companies Act 2014 and companies can be any losses accruing to their business. Persons broadly classified as either private or public engaged in business as sole traders may companies with limited or unlimited liability. protect themselves to some extent from certain categories of loss which the business Companies Act 2014 might incur through the purchase of insurance. The Companies Act 2014 condenses the Partnerships previous 17 companies acts and related company law provisions into a single The Partnership Act 1890 defines a partnership comprehensive code of company legislation. as a “relation which subsists between persons The design of the Companies Act 2014 focuses carrying on a business in common with a view on simplification and modernisation of to profit”. A “business” is defined in the company law. It created new forms of Partnership Act to include “every trade, company and introduced several changes to occupation or profession”. the roles of various persons in the corporate Essentially, a partnership is the coming structure. together of two or more persons in return for

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A significant portion of the Companies Act 2. Designated Activity Company (DAC) 2014 is dedicated entirely to the private The DAC is also a form of private limited company limited by shares (LTD). The LTD is company. The format of a DAC can be the company model of choice for the vast either a private company limited by shares majority of private companies in Ireland. The (which is similar in many respects to the remainder of the Companies Act 2014 sets out LTD) or a private company limited by the law applying to other company types, guarantee and having a share capital. including designated activity companies (DACs), public limited companies (PLCs), Private limited companies that are trading unlimited companies, companies limited by as credit institutions or insurance guarantee (CLGs) and external companies. undertakings are required to be DACs. 1. Private Company Limited by Shares (LTD) Key features The LTD is the most common form of • Capacity technically limited to objects company in Ireland. Like other limited clause in memorandum of association; companies, including DACs, a principal however, the Companies Act 2014 advantage of LTDs is that the liability of its specifies that the “validity of an act shareholders is limited to the amount, if done by a DAC shall not be called into any, unpaid on the shares registered in question on the ground of lack of their name. capacity by reason of anything contained in the DAC’s objects”. A key distinction between LTDs and DACs is that LTDs have full and unlimited • Limited liability of shareholders. capacity and are not tied to an object’s • Two-document constitution, clause. comprising memorandum and articles Key features of association. • Full and unlimited capacity. • Required to have an authorised share capital. • Limited liability of shareholders. • May not dispense with holding a

• One-document constitution. physical AGM if more than one • Not required to have an authorised shareholder. share capital. • Between one and 149 shareholders.

• May dispense with holding a physical • Two or more directors. AGM, irrespective of the number of shareholders. • Name must end in "designated activity company" or “DAC” (or Irish

• Between one and 149 shareholders. equivalent).

• One or more directors. • Can list any debt securities for offer to • Name must end in “Limited” or “Ltd” the public. (or Irish equivalent). 3. Public Limited Company (PLC) The PLC is also a form of limited company and its key distinguishing feature is that

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[ESTABLISHING A BUSINESS ENTITY IN IRELAND] 5 there is no statutory limit to the number • Unless constitution provides of shareholders it may have. Accordingly, otherwise, directors shall retire by PLCs are the chosen form of corporate rotation and directors’ remuneration structure where companies wish to list (if any) must be determined by the their shares on a stock exchange and offer shareholders in general meeting. them to the public. 4. Unlimited Company A Societas Europea (SE) is the European There are three types of unlimited equivalent of a PLC. The Companies Act company under the Companies Act 2014: 2014 specifies that a Societas Europea that a private unlimited company (ULC); a is registered with the CRO “shall be public unlimited company (PUC); and a regarded as a PLC” for the purposes of the public unlimited company that has no relevant legislative provisions of the share capital (PULC). Companies Act. Unlimited companies are not generally Key features used as trading companies in Ireland as • Capacity technically limited to objects the liability of the shareholders is not clause in memorandum of association; limited and in a winding up situation, the however, the Companies Act 2014 shareholders are obliged to pay all the specifies that the “validity of an act debts and liabilities of the company. done by a PLC shall not be called into Key features question on the ground of lack of capacity by reason of anything • Capacity technically limited to objects contained in the PLC’s objects”. clause in memorandum of association; however, the Companies Act 2014

• Limited liability of shareholders. specifies that the “validity of an act • Two-document constitution, done by an unlimited company shall comprising memorandum and articles not be called into question on the of association. ground of lack of capacity by reason of • Must have an authorised share capital anything contained in the company’s and a minimum issued share capital of objects”. €25,000. • Unlimited liability of shareholders. • May not dispense with holding a • Two-document constitution, physical AGM if more than one comprising memorandum and articles shareholder. of association. • Must have one at least shareholder • May not dispense with holding a with no statutory maximum. physical AGM if more than one • Two or more directors. shareholder.

• Name must end in "public limited • Two or more directors. company" or “plc” (or Irish equivalent). • Name must end in "unlimited company" or “uc” (or Irish equivalent). • Capacity to offer, allot and issue securities to the public.

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5. Company Limited by Guarantee (CLG) company that has limited liability and The CLG does not have a share capital and, establishes a branch in Ireland must instead, the shareholders’ liability is register with the CRO. External companies that do not have limited liability or do not limited by its constitution to such amount which the shareholders undertake to have a branch in Ireland are not required contribute to the assets of the company in to register in Ireland. the event of it being wound up. A “branch” is generally understood to The CLG is the legal form of choice for mean a place of business which has the charities, sports and social clubs and appearance of permanency and is management companies in Ireland. equipped to negotiate business with third parties. Key features III. Steps and Timing to Establish • Capacity technically limited to objects clause in memorandum of association; Incorporation Process however, the Companies Act 2014 The process of incorporation and registration of specifies that the “validity of an act a company commences with the delivery of a done by a CLG shall not be called into constitution together with the relevant question on the ground of lack of application form to the CRO. On the capacity by reason of anything registration of the constitution, the CRO will contained in the CLG’s objects”. certify in writing that the company is • Limited liability of shareholders. incorporated and issue a certificate of incorporation. The certificate of incorporation • Two-document constitution, is conclusive evidence that the Company is comprising memorandum and articles registered pursuant to the Companies Act 2014. of association. The CRO will not register a constitution unless • Cannot, and does not, have a share satisfied that all the requirements in relation to capital. the form of the constitution under the • May not dispense with holding a Companies Act 2014 have been complied with. physical AGM if more than one The constitution of each company will vary shareholder. depending on the type of company, but generally each must state: • Must have at least one shareholder with no statutory maximum. • the name of the company; • Two or more directors. • the type of company to be registered (i.e. LTD, DAC, PLC, etc); • Name must end in "company limited by guarantee" or “clg” (or Irish • the objects of the company (if required, equivalent). depending on company type); 6. External Companies • the limit on liability of the shareholders of the company (if relevant); and An external company means a company that is registered outside of Ireland, either • the share capital of the company divided within or outside the EEA. An external into classes and nominal value of each share.

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The application to incorporate a company must Office of the Director of Corporate also include: Enforcement (ODCE) • the company name; The ODCE is an official office and is, together • details of where the company proposes with the CRO, the principal authority for the to conduct its business enforcement of the Companies Act 2014. The primary mandate of the office is to improve the • the address of the registered office of compliance environment for corporate activity the company; in the Irish economy by encouraging adherence • details of the proposed directors and to the requirements of the Companies Act 2014 company secretary (including name, date and bringing to account those who disregard of birth and address); the law. • the consent of the proposed directors IV. Governance, Reputation, and Ongoing and company secretary to act; Maintenance • the initial shareholders and details of Company Officers their shareholdings; and 1. Directors • a description of the activity which the Directors are elected personnel responsible for company proposes to engage in. managing and running a company. As described The application also incorporates a declaration above, except for the LTD, companies must by the proposed directors that the have a minimum of two directors. requirements of the Companies Act 2014 have The Companies Act 2014 codifies the duties and been complied with in respect of the company. responsibilities of directors, as follows: The incorporation of a standard LTD can take • To act in good faith in what the director approximately five days from the lodgement of considers to be the interests of the the relevant application documentation with company; the CRO. • To act honestly and responsibly in Companies Registration Office (CRO) relation to the conduct of the affairs of The Companies Registration Office (CRO) is the the company; public registry in Ireland for companies. The • To act in accordance with the company’s CRO is a statutory authority and has several constitution and exercise his or her core functions, as follows: powers only for the purposes allowed by • the incorporation of companies; law; • the receipt and registration of • To not use the company’s property, companies’ post-incorporation information, or opportunities for his or documents; her own or anyone else’s benefit (unless otherwise permitted or approved); • the enforcement of the Companies Act 2014 in relation to the filing obligations • To not agree to restrict his/her power to of companies; and exercise an independent judgment (unless otherwise permitted or • making information available to the approved); public.

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• To avoid any conflict between the result of the company’s non-compliance with director’s duties to the company and the company and/or tax law. director’s other interests (including 2. Company Secretary personal interests) (unless otherwise permitted or approved); Each company must have a company secretary. A director of a company can generally also hold

• To exercise the care, skill and diligence office as the company secretary unless it is an which would be exercised in the same LTD with a single director in which case the circumstances by a reasonable person director and company secretary must be having both the knowledge and different. experience that may reasonably be expected of a person in the same The functions of a company secretary are a mix position as the director and the of legislative provisions and those duties knowledge and experience which the delegated to the company secretary by the director has; and directors. The functions are primarily administrative, such as ensuring that the

• To have regard to the interests of its company’s filing obligations under the shareholders in addition to a general Companies Act 2014 are complied with and the duty to employees. statutory registers of the company are Directors must be natural persons (i.e. another maintained. company cannot act as a director) and each It is the responsibility of the directors to ensure director must be 18 years of age or older. that the person appointed as secretary has the Undischarged bankrupts may not act as skills necessary to carry out the relevant duties directors. Directors are also subject to rules and functions. regarding restriction and disqualification, with If an individual, a company secretary must be disqualification orders of other jurisdictions 18 years of age or older. However, it is also being recognised in Ireland. possible for another company to act as There are some additional formalities for company secretary. directors, including that directors are not Statutory Registers permitted to hold more than 25 directorships in Ireland (with group companies treated as a Companies in Ireland are required to keep and single directorship). maintain certain registers. It is generally expected that the company secretary would be In addition, while there are no nationality responsible for updating and maintaining these requirements for the directors or company registers, which are usually kept at the secretary of an Irish company, all Irish company’s registered office address. incorporated companies must have at least one director that is resident in the EEA. If the Pursuant to the Companies Act 2014, the company does not have a director that is following registers are generally required to be resident in the EEA, the company must take out kept: a bond to the value of €25,000. The annual cost • Register of members (with “members” of such a bond is approximately €1,000 and the being an equivalent term for purpose of the bond is to provide for certain “shareholders”); fines or penalties that might be imposed as a

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• Register of the names and details of directors to convene an EGM. EGM’s are directors and secretaries; usually convened to deal with special • Register of any shares or interests in business of the company. shares held by directors and secretaries; General meetings will normally be held in • Register of any instrument creating a Ireland unless all shareholders entitled to charge; and attend and vote consent in writing to its being held outside Ireland. At least 21 days’ • Register of minutes of meetings. notice is generally required for the calling of In addition, with effect from 2019, Irish an AGM with at least seven days’ notice companies are also generally required to required for the calling of an EGM. maintain a register of their beneficial owners 2. Rights and Powers of Shareholders and to file such details in the CRO. A beneficial owner is any natural person who ultimately The Companies Act 2014 and the owns or controls a legal entity through direct or constitution of a company normally set out indirect ownership of 25% or more of shares or the powers of shareholders, by reference to voting rights or ownership interests. their position as shareholders and the rights attaching to shares. Companies may, and Registered Office often do, have more than one type of share Every company incorporated in Ireland must (known as “share classes”). In such have a registered office in the state. This is an circumstances, each share class can have address in Ireland to which all official different rights attached to it, meaning that communications and notices may be addressed holders of different shares can have different rights in respect of matters such as Shareholders attending meetings, voting power and 1. General Meetings entitlements to dividends or participation in profit. Irish companies are generally required to hold an annual general meeting of its The power to manage the business of the shareholders (AGM) every calendar year. As company is generally delegated to the described above, certain companies may directors of the company, who may exercise dispose with the holding of an AGM and all such powers of the company that are not may instead sign a written resolution to the required (by the Companies Act 2014 or by effect of the meeting. the company’s constitution) to be exercised by the shareholders. The directors of a company may convene an extraordinary general meeting of the 3. Shareholders’ Powers where the Company shareholders of a company (EGM) is in Default whenever they consider it appropriate. A Where a company or any of its officers is in shareholder or shareholders holding 50% or default in complying with any provision of more of the paid-up share capital of the the Companies Act 2014, it is technically company may also convene an EGM possible for a shareholder to serve a notice (although this percentage may be varied in on the company or officers requiring the the company’s constitution). Shareholders company or officers to remedy the default holding 10% or more of the paid-up share within 14 days. If the default is not capital of the company may request the

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remedied, an application can be made to affairs in future; for the purchase of the the High Court for an order directing the shares of any shareholders of the company company or officer to remedy the default. by other shareholders or by the company itself; and for the payment of 4. Shareholders’ Right to Seek an Investigation of a Company compensation.

On the application of certain persons, the V. Advantages of Establishing in Ireland High Court may appoint one or more A key feature of incorporation is that the competent inspectors to investigate the company becomes a separate legal entity, affairs of a company to enquire into the distinct from its shareholders, recognised in law matters specified. The application to the as having a separate identity and enjoying court can be by any of: the company itself; certain rights that flow from that distinction. not less than 10 shareholders of the Registered companies may also benefit from company; a shareholder or shareholders limited liability such that the assets, debts, and holding one-tenth or more of the paid-up obligations belong to the company and not to share capital of the company; a director of its shareholders. The following are the the company; or a creditor of the company. consequences of incorporation and could be Inspectors appointed pursuant to this described as the main advantages of Irish procedure take their directions from, and registered companies as business organisations: report to, the High Court. • Separate legal personality;

5. Shareholders’ Right to Petition for Relief in • Limited liability of shareholders; Cases of Oppression • Transferability of interests; An application can be made to the High Court by any shareholder who considers the • Perpetual succession; affairs of the company are being conducted • Ability to give security for borrowings; or the powers of the directors are being exercised in a manner that is “oppressive” • Formation of group structures; and or in disregard of his or her or their • Taxation. interests as shareholders. As for what There are many advantages to locating a constitutes “oppressive conduct”, this is business in Ireland, not least the evolving tax understood to mean the exercise of the system which is a key aspect of the Irish company’s authority in a manner which is Government's support for industry. Ireland has burdensome, harsh, and wrong. Examples a corporation tax rate of 12.5% on profits of conduct which could potentially lead to earned during an active business and the top such oppressive conduct would include rate of personal income tax is 40%. This, fraudulent and unlawful transactions, together with its capital gains participation oppressive management, and exclusion of exemption, generous foreign tax credit system, the shareholder from the management of membership of the EU, ever expanding double the company. tax treaty network, the R&D tax credits system On such an application, the High Court can & thin capitalisation rules makes Ireland an make an order: directing or prohibiting any attractive destination for the registration of a act; cancelling or varying any transaction; Company and the establishment of a business. regulating the conduct of the company’s

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Ireland has long been recognised as an ideal European country to establish a business. We have a well-educated, English-speaking workforce, an attractive tax regime and are closely situated to London and mainland Europe. Ireland has established itself as an easy location to start a business, a preferred jurisdiction for taxation and a front-runner for establishing European headquarters. Ireland has for years had a consistent policy of welcoming foreign-owned business and is well- positioned to continue to do so.

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